Managerial characteristics and performance of eurozone mutual funds

• Published date: 01 December 2023
• Author: Konstantinos Tolikas,Marc Callonnec
• Date: 01 December 2023
• DOI: http://doi.org/10.1111/jfir.12343

Received: 29 September 2021

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Accepted: 23 June 2023

DOI: 10.1111/jfir.12343

ORIGINAL ARTICLE

Managerial characteristics and performance of

eurozone mutual funds

Konstantinos Tolikas

1

|Marc Callonnec

2

1

Sheffield University Management School,

Sheffield University, Sheffield, UK

2

Capco, London, UK

Correspondence

Konstantinos Tolikas, SheffieldUniversity

Management School, Sheffield University,

Conduit Road, Sheffield, S10 1FL, UK.

Email: k.tolikas@sheffield.ac.uk

Abstract

We investigate the relation between observable managerial

characteristics (i.e., gender, age, tenure, professional

qualifications, and advanced education) and performance

in diversified equity mutual funds domiciled in the euro-

zone. We find that differences in the fund alphas are

statistically significant only in groups based on age, tenure,

and professional qualifications (i.e., chartered financial

analyst [CFA]). We also find a significant positive relation

for age and CFA certification with a fund's risk‐adjusted

performance and a significant negative relation for tenure.

However, we find no significant effect for gender and

advanced education (i.e., master of business administration

[MBA]). The differences in risk taking are significantly

related only with age and tenure; the former has a negative

and the latter a positive relation with risk taking.

JEL CLASSIFICATION

G2, G23

1|INTRODUCTION

Investors increasingly pay attention to who manages their funds. Indeed, information services (e.g., Morningstar,

Bloomberg) contain the biographies of fund managers, and the performance of managers at large funds typically

make front page news in the business sections of magazines and newspapers. An important question that arises,

therefore, is whether a fund's performance is related to managerial characteristics. Our objective is to examine

J Financ Res. 2023;46:925–947. wileyonlinelibrary.com/journal/JFIR

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925

This is an open access article under the terms of the Creative Commons Attribution‐NonCommercial License, which permits use,

distribution and reproduction in any medium, provided the original work is properly cited and is not used for commercial purposes.

© 2023 The Authors. Journal of Financial Research published by Wiley Periodicals LLC on behalf of The Southern Finance

Association and the Southwestern Finance Association.

whether the observable managerial characteristics of age, gender, tenure, advanced education, and professional

qualification are significantly related to the performance and risk taking of diversified equity mutual funds in the

eurozone.

The global mutual fund industry has grown considerably over the last 2 decades, with total net assets increasing

from $6.96 trillion in 2000 to over to $67.1 trillion by the end of 2020, almost 42% of which are held by equity

funds (Investment Company Institute, 2021). Despite the growing interest in active fund management among

investors, its track record has been unimpressive. Indeed, there is considerable evidence that the performance of

actively managed equity funds is poor and that in most cases they fail to beat a set of benchmarks on a net‐of‐fees

basis (see, e.g., Busse et al., 2010; Carhart, 1997; Del Guercio & Reuter, 2014; Fama & French, 2010; Gruber, 1996).

However, a strand of the literature provides evidence that fund managers do display some skill (see, e.g., Brown &

Goetzmann, 1995; Elton et al., 1996; Grinblatt & Titman, 1992; Hendricks et al., 1993). These studies indicate that

managerial characteristics that indicate ability, skills, effort, and knowledge (e.g., higher SAT and GMAT scores,

MBA degree from highly ranked school, CFA certification) are significantly related to fund performance.

1

Intuitively,

these characteristics should be related to fund performance because managers who display them should have

greater human capital and therefore better performance. Chevalier and Ellison (1999a) find that managers who

attend undergraduate institutions with higher overall SAT scores generate higher risk‐adjusted excess returns. They

attribute this finding to the greater innate abilities of the manager, the benefits of a better education, and the

information benefits of a better professional network (Cohen et al., 2010). Recently, Tan and Sen (2019) find that

the educational diversity of mutual fund managers, in terms of both educational degree and specialization, have a

positive effect on fund performance. Gottesman and Morey (2006) report that the mean GMAT score of a

manager's MBA program is positively and significantly related to the fund's performance. Furthermore, they report

that managers with MBAs from Business Week's top 30 programs have better performance than managers with

MBAs from unranked programs and managers without MBAs. Golec (1996) also finds that investors can expect

greater risk‐adjusted performance from young managers who hold an MBA and have longer tenure at their funds.

Although the human capital argument can also be applied to managerial tenure, one could argue that managers

with longer tenures have lower drive to excel than managers who have only recently been put in charge and have

yet to prove themselves (Golec, 1996). Chevalier and Ellison (1999a) argue that young managers either have better

performance because they are eager to advance their careers and therefore work harder than older managers or

perform worse because of lack of experience. Shukla and Singh (1994) report that funds with at least one CFA

manager outperform funds with no CFA manager; Switzer and Huang (2007) report similar findings. There are

several reasons why the performance of female fund managers might be different from the performance of male

fund managers. First, if investors are prejudiced against females, funds managed by female managers might receive

lower fund inflows compared to funds managed by male managers, which could subsequently lead to inferior

performance (see, e.g., Niessen‐Ruenzi & Ruenzi, 2019; Rakowski & Wang, 2009). Second, research shows that

female investors are more risk averse (see, e.g., Barber & Odean, 2001; Byrnes et al., 1999; Niessen‐Ruenzi &

Ruenzi, 2019; Sunden & Surette, 1998), which in equilibrium is expected to lead to lower returns.

2

Finally, Barber

and Odean (2001) show that male managers trade 45% more than female managers, which results in a net return

reduction of 2.65% per annum compared to a reduction of 1.72% per annum for female managers.

Our study is primarily motivated by the limited focus of the literature on European mutual funds. Indeed,

although European equity mutual funds hold about 16.5% (i.e., $4.64 trillion) of total worldwide net assets in equity

mutual funds (i.e., $28.18 trillion), most of the literature focuses on the US mutual fund market. Exceptions are

1

SAT stands for Scholastic AssessmentTest and is a test intended to assess writing, critical reading, and math skills for university and college admission in

the United States. GMAT stands for Graduate Management AdmissionTest and is a test intended to assess certain analytical, writing, quantitative, verbal,

and reading skills for admission to a graduate management program, such as master of business administration (MBA). CFA stands for chartered financial

analyst and is a certification of the required skills and knowledge needed by investment and financial professionals.

2

However, a recent study by Kirchler et al. (2018) shows no significant differences in risk taking by financial professionals of different genders.

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